House Prices 27% Overvalued!

Blacklight

The earnings to cost ratio argument is bullshіt.

Limiting borrowing to some imaginary multiplier when interest rates are so low doesn't make sense. Lenders base their decisions on affordability, ability to pay.

Someone earning £25k takes home £1,600 a month. Why should they be limited to a mortgage of £387?

Interest rates will rise?

What's unaffordable to our £25k earner then?

If interest rates were 12.5% it would cost them £900 to service their debt. Hardly the end of the world even then and lets face it, it's just not going to happen before they're earning £50k.

It's fair to lend them 5.5x (£140,000) and base your decision on interest rates rising to a sensible amount.

Still, carry on dreaming about your luxury London home that you'll have when prices come down 27%. I'm sure the 50,000 people buying a house every month will be very envious of you...

chucknorris

Silverbull wrote: »

17 years?

So you think the recovery is here and will last 17 years?

What crack are you smoking?

Recovery is possibly around the corner, but more likely we have a few years of stagnation followed by the true recovery. If you think there will be another recession a lot quicker than about 17 years then you are the one on crack. I'm not saying we are out of the woods ion this recession yet but we have seen the worst. I've heard all this before in the early 90's when bears were saying it was the end of the housing market as we know it.

IveSeenTheLight

phil_b wrote: »

Just extra things to think about. Anyway, I think it's been debated a million times on here already.

It has, but once again the fundamentals are ignores as we enter 'groundhog day' again.

Expect it to come up again...... and again..........and again........and again.

I think it was Joeskepi that said "Goldfish learn quicker than this"

chucky

HAMISH_MCTAVISH wrote: »

No Brit, the average age of a FTB is now 32.

http://www.communities.gov.uk/docume...xls/141293.xls

Which is lower than it was in 1990.

I see the Bear Credibility Index is still plummeting.........

poor Brit - very time he comes out with this nonsense he gets discredited...

to be fair to him - at least he's kept the same user name. not like the others who come backwards and forwards each time they get a fool made out of them... nuff respect for that Brit

IveSeenTheLight

vaporate wrote: »

If the average house price is say 200 000 noone could raise 20 000 for a deposit, if 10 percent is all that is needed without parental help.

That is my point.

If 200,000 is the average house (I thought it was currently about £160k however) then it is likely to be jointly owned.
10% is £20k, but in reality it means £10k each.

This site is full of suggestions where you can save money.
Surely £10k is achievable if you really want to get a deposit together

P.S It would only be £8k each on the current pricing.

Yakubu22

phil_b wrote: »

They do have an effect, but using the ratio as the single measure of house-prices is very short-sighted surely?

What is the average 'gifted deposit' people get from family/inheritance/whatever? You can chop that off the average house price figure and start again with the numbers.

What about current interest rates. Massively influential and a bigger measure of affordability.The ratio could be 10x, but if paeople are paying a 0.00001% interest rate they would very affordable.

Why just use one persons wage against the average house price? the average house is maybe a 2/3 bed semi? That would typically have 2 working adults so why not use a dual combined average wage, or at least 1.5.

Just extra things to think about. Anyway, I think it's been debated a million times on here already.

Neither myself or any of my close friends have been gifted a deposit.

the IRs is a valid point though.

angrypirate

Blacklight wrote: »

The earnings to cost ratio argument is bullshіt.

Limiting borrowing to some imaginary multiplier when interest rates are so low doesn't make sense. Lenders base their decisions on affordability, ability to pay.

Someone earning £25k takes home £1,600 a month. Why should they be limited to a mortgage of £387?

Interest rates will rise?

What's unaffordable to our £25k earner then?

If interest rates were 12.5% it would cost them £900 to service their debt. Hardly the end of the world even then and lets face it, it's just not going to happen before they're earning £50k.

It's fair to lend them 5.5x (£140,000) and base your decision on interest rates rising to a sensible amount.

Still, carry on dreaming about your luxury London home that you'll have when prices come down 27%. I'm sure the 50,000 people buying a house every month will be very envious of you...

Where do you ever get your figures from? Someone earning £25 000, paying 2% into a pension and paying off their student loan (trying to do this for a typical FTB) will have a monthly take home of £1490 (not so far from your £1600 granted).

Say they take out a £140 000 mortgage (5.5times their salary, quoting you), their monthly repayments will be in the order of £630 based on a 2.5% mortgage. If you know of anywhere that will offer an FTB a mortgage of 2.5% please let me know - i have been very generous here and i think a more realistic figure would actually be 4.5%.

Say interest rates go up to 12.5% - their monthly repayments go up to £1525 per month. Can you see a potential problem here? Its more than their monthly income. So quite frankly i dont think its fair to lend them 5.5 times their salary. I think its irresponsible. I also think that lenders should by law have to make this calculation public to all buyers so they understand what their situation could potentially end up being

abaxas

I hate all this affordability claptrap.

Simple face remains that cost of housing > cost of building + land.

We could sort this all out, but we choose to limit supply via the natural monopoly of 'planning'.

silvercar

Say interest rates go up to 12.5% - their monthly repayments go up to £1525 per month. Can you see a potential problem here? Its more than their monthly income. So quite frankly i dont think its fair to lend them 5.5 times their salary. I think its irresponsible. I also think that lenders should by law have to make this calculation public to all buyers so they understand what their situation could potentially end up being

If people were only given mortgages on the basis that they could afford on current salaries to pay a long term interest rate of 12.5%. Very very few people would get mortgages.

12.5% is 48 quarter point rises in base rate, or if you were talking about pay rate about 30 quarter point rises. Add to that you were basing affordability on current earnings, whereas high interest rates would be inflationary and wage inflation would also occur. Even if the unlikely happened and rates hit 12.5%, I doubt they would stay that way for long.

If everyone didn't take a mortgage because they may be a point in the next 25 years when it would be difficult to pay the bills if they had no savings, no-one would borrow.

torontoboy45

chucky wrote: »

[/LEFT]
dude - sorry to disappoint but last time i looked people looked at salaries, interest rates, expenditure etc to compare if a mortgage or a house was affordable.

here's a graph exactly like yours but with inflation...

what d'ya reckon? still overvalued?

interesting graphs chucky.

a shame the economist didn't think to use them (or something similar) at the beginning of the yr, before it called the market 29% overvalued......

but it may not be o/valued by this %age. it could be 20%. or 15%. or 12%. pull any neg. figure out of the air; once the correction arrives - as it must - I'm going to enjoy watching hamish and his mates squirming and looking increasingly ridiculous.

I could carry on the argument but I can't be bothered. I'd rather read the economist.